A recent article by Allison Bell on ThinkAdvisor reviewed nine of the IRS changes for 2018 that may impact the retirement plans for some individuals and couples. Below is a review of the items the author included in her article.
Standard Income Tax Deductions
If you choose the standard tax deduction instead of itemizing deductions on your tax return, there is good news. All standard income tax deductions are being slightly increased for the tax year 2018.
- Unmarried individuals can claim a standard deduction of $6,500 for 2018, an increase of $150.
- Heads of Households can claim a standard deduction of $9,550 for 2018, an increase of $200.
- Married couples filing separate returns can claim a standard deduction of $6,500, an increase of $150.
- Married couples filing a joint return and surviving spouses can claim a standard deduction of $13,000, an increase of $300.
As you can see, the largest increase is for married couples filing joint returns or surviving spouses, but none of the increases were extremely large for any tax filers.
Unified Credit Against Estate Tax
The Unified Credit Against Estate Tax is increasing from $5.49 million in 2017 to $5.6 million in 2018. The amount increases each year for inflation. For 2018, the amount increased by $110,000.
Gifting during your lifetime can be a very important element of an estate plan when you use gifting to reduce the taxable portion of your estate. The Unified Credit Against Estate Tax allows you to gift up to $5 million, plus the annual inflation adjustments, during your lifetime that is not subject to a gift tax.
Estate Tax Payable in Installments
The amount that determines the 2% portion for calculating interest when the estate tax is going to be paid in installments under Section 6166 will increase from $1.49 million to $1.52 million, a $30,000 increase.
Section 6166 aids in payment of estate taxes for estates that consist largely of an interest in a closely held business or a farm. The section allows additional time to pay the estate tax, provides a special payment schedule, and uses a lower interest rate for the estate tax applicable to the value of the interest in the business or farm. The choice to pay the estate taxes applicable to the interest in the business or farm can be a strategic decision used to provide the greatest benefit to the heirs.
Gift Tax Exclusion
The exclusions for 2018 did not increase by very much. The exclusion for gifts to any one person only increased by $1,000 to $15,000 for the 2018 tax year. However, the exclusion for gifts to a spouse who is not a U.S. citizen increased by $3,000 to $152,000.
It is important to utilize every tool available to reduce the amount of estate tax your heirs might have to pay when you pass. The annual gift tax exclusion can help reduce the value of your estate by allowing you to gift up to a specific amount each year to family, friends, and charities. Your gifts must meet certain requirements to qualify for the exclusion. Our Michigan estate tax attorneys routinely assist individuals with their annual gift tax plan to maximize the value to their estate and heirs.
Cafeteria Plans
For anyone who wants to take advantage of the pre-tax dollars, they can contribute to a health flexible spending account (FSA) will not be too happy about the increase. The increase in the amount of voluntary pre-tax salary deductions for contributions to an employee’s health FSA is only $50. The 2018 limit is $2,650.
Qualified Small Employer Health Reimbursement Arrangement
Small employers (50 or fewer employees that are not ALEs) that do not offer their employees a group health plan can offer a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) to qualified employees to help employees pay their insurance premiums and health expenses. Employees must have minimum essential coverage through another source to take advantage of the pre-tax contributions available through a QSEHRA plan.
For 2018, employer reimbursement amounts for individuals only increase by $100 to $5,050. The amount for family coverage increases by $250 to $10,250.
Maintaining Minimum Essential Coverage
If the Affordable Care Act is not amended or repealed by Congress, individuals who do not maintain major medical coverage or minimum essential coverage, the IRS will continue to use $695 as the base for calculating penalties.
Eligible Long-Term Care Premiums
If you itemize your medical expense, you can include some of the cost for a long-term care insurance policy in the amount you itemize. Long-term care insurance policies can be an essential element of a comprehensive retirement plan and estate plan.
The amount of the premium you can include on your taxes varies depending on your age. The amounts for 2018 will increase between $10 and $30 for individuals under the age of 60 years. For seniors over the age of 60 years, the amount could increase as much as $90. Check with our estate planning attorney to discuss the benefits of long-term care insurance and how much of the premium you might be able to include for tax purposes.
The Qualified Long-Term Care Insurance Contract or Life Insurance Contract Per Diem Limitation
The maximum benefits per day that you can receive for long-term care that will not be considered taxable income will remain at $360 per day.
The Elder Care Firm of Christopher J. Berry, CELA — Michigan Retirement Planning Attorneys
Preparing for retirement is very important. The sooner you begin contributing to retirement accounts, the better chance you will have of securing sufficient retirement funds to support the standard of living you desire for your retirement years. Our Michigan retirement planning attorneys and estate planning attorneys can help you formulate a plan that meets your goals for retirement.
Call our office at 888-390-4360 or use the contact form on our website to schedule an appointment.
Source: “9 New 2018 Tax Numbers to Know.” Allison Bell. ThinkAdvisor. 19 October 2017.